ICC LEERY OF AMERITECH MERGER

Jon Van, Tribune Staff WriterCHICAGO TRIBUNE

In their first public deliberations on SBC Communications Inc.'s planned takeover of Ameritech Corp., members of the Illinois Commerce Commission suggested Thursday that the huge deal may be in serious trouble.

"I find the record to be appallingly vague on many issues," ICC Chairman Richard Mathias said in the first indication of his opinion of the $60 billion merger.

At least two other commissioners had voiced reservations about the deal during public hearings this month, so Mathias' concerns open the possibility that a majority of the ICC could vote to reject the merger or to impose significant conditions as part of approval.

Illinois law requires the ICC to review utility takeovers to determine that the ownership change won't cause poorer service, higher rates, less competition or other events that harm customers.

In earlier hearings, Mathias established that it was up to San Antonio-based SBC and Chicago-based Ameritech to prove their merger passes legal muster by providing a preponderance of evidence to that effect.

His complaints about the vagueness of the formal arguments indicate that Mathias could find the giant phone companies have failed to make their case.

After reviewing the deal, the ICC staff recommended that it be denied, concluding it would harm Illinois consumers by restricting local phone competition and use Illinois phone customers as a cash cow to finance SBC's forays into 30 other large cities.

But Mathias suggested that the deal may be rejected altogether or at least be saddled with major conditions.

If the ICC chooses to give conditional approval, Mathias said, those conditions should be spelled out clearly and plainly, avoiding the lawyerly language that characterizes most material submitted in the formal record.

If the conditions are clear, then the merged SBC/Ameritech will meet them, he said, "but if they're not clear, then businessmen will do what they have traditionally done in any industry and nibble around the edges."

The core arguments made by SBC for its Ameritech takeover are that it needs "scope and scale" to execute a "national-local strategy" of offering phone service to large business customers in 30 cities outside the 13 states now served by SBC and Ameritech. The firms will realize savings by adopting "best practices" now in place at each company.

All five ICC commissioners seemed to agree to some degree that these arguments are largely meaningless rhetoric.

"What is a `best practice'? It's just a catch phrase from business school and very nebulous in practice," said Commissioner Terry Harvill.

ICC hearing examiners had proposed that a merged SBC/Ameritech be required to make regular reports to document that it was fulfilling its promise to adopt "best practices," but Commissioner Ruth Kretschmer questioned what the term means.

"I never favor reports just for the sake of reporting," she said. "We should have clarity and plain English. I don't find it (`best practices') terribly helpful."

Mathias said responses from SBC and Ameritech executives to questions about how small businesses and residential customers will fare under the proposed "national-local strategy" were "extremely vague."

Harvill said the ICC needs assurances "that residential and small business customers will not be left be left behind" by the national-local strategy.

"I agree that it's very vague," Harvill said.

Although avoiding the basic question of whether to approve the merger at all, the commissioners discussed what conditions they might impose on a combined phone company. These included a much stiffer fine if Ameritech continues to miss Illinois standards for restoring service to customers when an outage occurs and requiring the merged company to invest roughly $3 billion in network infrastructure upgrades in Illinois over the next five years.

"I don't want to see funds generated in Illinois used in other regions," Kretschmer said.

Commissioner Richard Kolhauser, who is regarded as most favorable to the merger, said that remarks by his colleagues indicated they prefer a heavy regulatory approach rather than encouraging competition and letting market forces rule.

"All the people who talk about competition theoretically are in the end turning out to be regulators at heart," said Kolhauser, who did agree with the others about the vagueness of the formal record.

"The record is weak," he said. "Ninety percent of it is speculation--from all parties."

The ICC members will continue their deliberations next week in Springfield and have yet to determine when they will formally vote on the takeover. Their deadline for action is late June.

In Washington, the Federal Communications Commission is also considering the deal. The FCC staff has expressed serious reservations and is negotiating with SBC and Ameritech to modify their transaction. An FCC decision is expected by July.

The Justice Department and state regulators in Ohio have already cleared the merger, but denials by the ICC or FCC would kill it. Even imposition of conditions SBC considered too onerous could derail the takeover, announced a year ago.